Huntington National Bank 2004 Annual Report Download - page 36

MANAGEMENT’S DISCUSSION AND ANALYSIS HUNTINGTON BANCSHARES INCORPORATED
$6.7 million and $1.2 million, respectively, of previously established reserves, which were no longer needed, and which
lowered 2003 and 2004 non-interest expense. (See Table 3 and Note 26 of the Notes to Consolidated Financial Statements.)
8. S INGLE COMMERCIAL RECOVERY — A single commercial credit recovery of $11.1 million in 2004 on a loan previously
charged-off in 2002 favorably impacted the 2004 loan loss provision expense, as well as C&I, total commercial, and total net
charge-offs for the year. (See Tables 3 and 16.)
9. G AIN ON THE SALE OF W EST V IRGINIA BANKING OFFICES — In the 2003 third quarter, the Company sold four banking offices
in West Virginia, which resulted in a $13.1 million gain. (See Tables 1, 2 and 3.)
10. SEC FORMAL INVESTIGATION - RELATED EXPENSES AND ACCRUALS — On June 26, 2003, Huntington announced that the
Securities and Exchange Commission (SEC) staff was conducting a formal investigation into certain financial accounting
matters relating to fiscal years 2002 and earlier and certain related disclosure matters. On August 9, 2004, Huntington
announced the Company was in negotiations with the staff of the SEC regarding a settlement of the formal investigation and
disclosed that it expected that a settlement of this matter, which is subject to approval by the SEC, would involve the entry of
an order requiring, among other possible matters, Huntington to comply with various provisions of the Securities Exchange
Act of 1934 and the Securities Act of 1933, along with the imposition of a civil money penalty. At December 31, 2004, the
Company had reserves related to the expectation of the imposition of a civil money penalty, which the Company viewed as
sufficient given negotiations with the SEC. However, no assurances can be made that any assessed penalty may not exceed
this amount.
Management continues to have ongoing discussions with the staff of the SEC regarding resolution of this matter. The final
results of the investigation, however, are not known at the time of this filing and therefore, the impact to Huntington’s
financial condition, results of operations, and cash flows is not known.
In connection with this investigation, $13.6 million of expenses and accruals were recorded in 2004, following $6.9 million of
such costs in 2003. (See Table 3 and Note 22 of the Notes to Consolidated Financial Statements.)
11. U NIZAN ACQUISITION SYSTEM CONVERSION EXPENSES — On January 27, 2004, Huntington announced the signing of a
definitive agreement to acquire Unizan Financial Corp. (Unizan), a financial holding company based in Canton, Ohio. On
June 16, 2004, Huntington announced that the closing of the Unizan merger would be delayed beyond the early July 2004
targeted date as the FRBC had informed the Company it was extending its merger application review period to coordinate
further with the staff of the SEC regarding the SEC’s formal investigation and to complete its review of the Community
Reinvestment Act aspects of the merger. On November 3, 2004, Huntington announced that it was negotiating a one-year
extension of its pending merger agreement with Unizan. It was also announced that Huntington was withdrawing its current
application with the FRBC to acquire Unizan and intends to resubmit the application for regulatory approval of the merger
once Huntington has successfully resolved the pending SEC and banking regulatory concerns. On November 11, 2004,
Huntington and Unizan jointly announced they had entered into an amendment to their January 26, 2004 merger
agreement. The amendment extends the term of the agreement for one year from January 27, 2005 to January 27, 2006.
Management remains in active dialogue with the SEC and banking regulators concerning these and related matters and is
working diligently to resolve them in a full and comprehensive manner. No assurances, however, can be provided as to the
ultimate timing or outcome of these matters.
In the 2004 third and fourth quarters, the Company recorded certain integration planning and system conversion expenses,
which totaled $3.6 million, related to this pending acquisition. (See Table 3 and Note 23 of the Notes to Consolidated Financial
Statements.)
12. P ROPERTY LEASE IMPAIRMENT — As a result of the 2004 fourth quarter property valuation review, a $7.8 million property
lease impairment was recognized. (See Table 3.)
13. L ONG - TERM DEBT EXTINGUISHMENT — In the fourth quarter of 2003, the Company prepaid $250 million of high-cost,
repurchase agreements, resulting in a $15.3 million loss being recorded in non-interest expense. This debt, which carried an
average rate of 4.98% and matured in 2006, was replaced by funding at significantly lower rates. (See Table 3 and Note 13 of
the Notes to Consolidated Financial Statements.)
14. O NE - TIME ADJUSTMENT TO CONSOLIDATED SECURITIZATION — In the 2003 third quarter, an automobile securitization trust
was consolidated with the adoption of FIN 46. Related to the trust were two foreign companies that were also consolidated.
In the 2004 fourth quarter, the Company learned of adjustments related to earnings that these entities had realized on the
invested cash that remains offshore. Since the residual earnings offset the funding cost of this structure, this one-time
funding cost adjustment lowered interest expense by $3.7 million in the fourth quarter. (See Table 3.)
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